Examination of Witnesses (Question Numbers
Bob Wigley and James Cameron
24 November 2010
Well, gentlemen, I thank you both and thank you for your patience
for our delayed start this afternoon. It's always a pleasure to
have you before the Committee, James, and we very much welcome
Bob Wigley as well in terms of the report that you've done. We
understand that you've got to leave at 4 pm, I think, Mr Wigley?
Bob Wigley: Sorry?
Chair: I understand you've got to leave
at 4 pm, so we've got one eye on that.
Bob Wigley: That's
Chair: And it may be that we do have
interruptions through voting in the House this afternoon. So,
having got through those preliminaries, can I go straight into
the inquiry that we're holding? One of the things that I think
came out in evidence that you've given to us and public pronouncements
that you've had is that you thought it was really important that
the bank should become operational as quickly as possible. I just
wonder what you think of the timetable now that we've got it,
and what risks you think may or may not be associated with that
in terms of actually the timescale in which the bank will become
Bob Wigley: Who
are you addressing the question to?
Chair: Addressed to you, please, yes.
Bob Wigley: To
me. Well, I think that setting up a Green Investment Bank of the
farreaching nature that we've recommended in our report
and the complexity that that will entail was inevitably going
to take time. We set a deliberately challenging timetable to provoke
action. It is clear that there is both at high ministerial level
and among officials a very high degree of focus on getting to
a substantive result. From a personal perspective, I think if
it means it takes a few extra months but we get something that
has a substantive mandate, that has significant resources and
that gives the Green Investment Bank a good chance of achieving
that mandate, then those extra few months will be worth spending
the time on.
Thank you. Do you want to add to that, Mr Cameron?
I would. What I'd like to caution against is running an internal
process within the civil service to create the ideal institution
in two or three years' time. That's definitely not what we're
advocating and I am concerned thatbecause it takes a while
to form a view of what the problem is and then time to organise
a response to that problem, and then time to construct an institution
designed specifically to solve that problemif you spend
too long waiting to get it all exactly right at day one, you're
often too late to really intervene decisively to resolve the problem
that you started with. So, I'm all for trying to complete a task
so that what you're finished with is fit for the purpose, but
delay is not helpful and the more time we spend discussing what
could be, the less time we're spending channelling capital into
the solution. And, in fact, there is a chilling effect on investment
flow as people wait in expectation of something coming through
called the Green Investment Bank. So, that's the balance to be
Given that we now know what the Government's timetable is and
it's in front of us, how do you feel that this rule of unintended
consequences might apply? Do you think the Government has the
timing right? Do you think that investors might be scared off,
or do you think that it's just perfect timing? Could it have been
done more quickly?
Well, we have such clear political authority for this institution.
It really is startling how solid the support is at the very top
of the Government. So, there can't be any doubting about the intentions
of the political leaders that we have. We've expressed a need
for this institution to deal with a current and pressing problem,
and we know we have to deploy capital at scale relatively quickly
in order to turn down the profile of the emissions for this country
over the longer term. So, urgency, political decision-making has
made the need clear, so we really have to galvanise action.
Now, having said that, it's not easy to make a really
first-class institution exist. And I quite like the reference
point of the budget; it's relatively near term and I'm supportive
of that. But I sometimes sense that there might be some longstanding
historic internal battles that will have to be fully resolved
before we are ready. Well, I think the conditions are ready to
create this institution as soon as practically possible.
Q62 Caroline Lucas:
I'm just interested to know if it's possible to put any kind of
amount on this chilling effect. If it's not here for another two
years and we don't get the bank until 2012, is it possible to
quantify that chilling effect or is it just a sense that you get
from your knowledge of the state of the market?
I'm not sure I could quantify it, but it is a sense I get from
the state of the market. I sense also that there's an opportunity
in the near term for the Green Investment Bank to display its
credentials, to show what it's there for, to help convene the
necessary interest, to put together the investment packages and
to align the interests of public policymakers and institutional
investors of the various types we needthe equity providers
as well as the debt providers. We've got the conditions now that
could display what the Green Investment Bank is for.
Q63 Zac Goldsmith:
If the bank isn't operational until September 2012, when does
that mean the first investments are likely to be made by the bank?
Well, I don't know whether you've got a view on this and how long
it takes to go betweenjust to say that we are stuck, if
that's the right word, with that timetable. We have to be absolutely
ready at that point. We need a slate of investments ready. We
need a mandate sorted out.
Q64 Zac Goldsmith:
Do you think that's possible?
Well, it's certainly possible. It's certainly possible. I personally
would feel the need to make those investments much sooner than
that, and see the sense in beginning even if the institution needs
to evolve over time. I think we can set a very clear longterm
vision for the organisation, a mandate that's in the public interest
that maintains capital flow over decades, not months. All of that
I think you can set in motion really very quickly.
Bob Wigley: If
we go back to the previous question, I was just trying to see
how helpful we could be to answer your question. The report does
identify that in 2009, net new investment in clean technology
in the UK was about $12 billion. So, we are certainly not saying
that the effect of a delay is to risk the whole $12 billion, but
clearly that at least gives you some scope around the potential
for the chilling effect, if I can put it that way. Because investors
will naturally say, "Well, if a GIB is coming, since we don't
know what degree of subsidy it might involve, we'd better wait
because otherwise we might invest now and there might have been
better terms available later, so we'll wait". That's the
Q65 Zac Goldsmith:
I wanted to ask that since the publication of the report, can
you tell us a little bit about the dialogue you've had since then
with Ministers and officials?
Bob Wigley: Well,
from a personal point of view, mine has been periodic. I've been
consulted by representatives of BIS, DECC and HMT at different
points. Those consultations are ongoing, and I think it would
not be helpful to get into the detail of specific individual private
conversations. But there have certainly been periodic consultations
on different issues from those three departments.
Q66 Zac Goldsmith:
Just to probe, are there any areas particularly where there's
been a disagreement between recommendations in the report and
the position of the Government? Anything that really stands out?
Bob Wigley: Well,
I think what might be helpful is to clear up what is perhaps a
misunderstanding, which is that, I think, when you read media
reports of what's going on, there is a rather black and white
debate portrayed between, for example, a bank and a fund. I think
what's happening is an intelligent debate and analysis between
a group of people who, as far as I can see, are all committed
to creating a substantive Green Investment Bank that has a real
impact over time but, on the other hand, safeguarding the savings
to the public sector borrowing requirement, public sector net
debt, and reduction of the deficit that has just been hard fought
for through the Comprehensive Spending Review. And I am certainly
of the view that if I were the Chancellor, having just achieved
the large and difficult reductions that have been securedassuming
they're deliveredI certainly wouldn't want, without very
careful thought, to see a new body be created that put those savings
So, I think it's important to put the debate that's
going on in context. I think everyone at ministerial level involved
is basically committed to having a substantive Green Investment
Bank or fund or vehicle, whatever you want to call it, that has
a real impact over time. Let's not forget, of course, it was the
Chancellor who commissioned the Commission; it was his idea in
the first place. I don't sense any reduction in commitment on
his behalf, for example, to see this project through, but I think
it has to be an intelligent debate in the context of making sure
that we don't put at risk the fiscal reduction that has been hard
And maybe another helpful clarification for the Committee
would be that in other countries in Europe who, frankly, have
a less robust and less transparent Government accounting system,
the development banks that exist in most other countries don't
appear in the Government accounts. And in this country, because
we have a more robust and more transparent system, a development
bank's borrowings, for example, would be included in definitions
of public sector net debt. So, this is not a trivial issue in
the context of the reductions that have just been achieved.
Q67 Zac Goldsmith:
Exactly right, which means that there is an unavoidable tension
between the requirements of the Chancellor on the one hand and
the Green Investment Bank.
Bob Wigley: I think
that's a good way of putting it.
Zac Goldsmith: So, ultimately, therefore,
it seems like what you're saying is this is a political decision
that's going to have to be taken, not so much a commercial one
because there's no avoiding the new transparency rules.
Bob Wigley: I personally
don't see it as a personal issue between individual Ministers.
I think all the Ministers who I've spoken to remain committed
to achieving a substantial "green investment something".
I think as a team, having secured these reductions, they don't
want to put them at risk. So, there is, as I say, an intelligent
debate going on about how you achieve both objectives, and it's
Just to press you a little bit more on this intelligent debate
that's going on and, perhaps, to refer you back to the Liaison
Committee last week where the Prime Minister appeared in front
of the Liaison Committee, and in response to a question that I
asked about the Green Investment Bank as to whether or not there
might be this sort of tension as to how it was going to be resolved
between HMRC, Treasury, DECC and so on, my question to him was
whether he would be prepared, if necessary, to intervene to try
to get the right outcome in terms of all of this. Do you feel
that there is an adequate procedure or mechanism for resolving
these various tensions that possibly exist, in terms of getting
the right outcome in terms of the current fiscal situation that
Bob Wigley: I do,
yes. I think there is a very active dialogue going on between
the senior Ministers who are committed to this project, and they
are trying hard between them to find a way of achieving all the
somewhat mutually incompatible objectives. That's, in a sense,
what government is all about, isn't it? This is a particularly
tricky set of issues to square, but they are all working constructively
What do you think the time frame is by which they have to have
resolved what it's going to look like?
Bob Wigley: I couldn't
It's really hard. I'll just give you my personal experience from
the Business Advisory Group to the Prime Minister, where the Chancellor,
Deputy Prime Minister and Business Secretary all sit in those
meetings. I have no reason to doubt all their collective and individual
commitments to make the Green Investment Bank real. But the followon
conversations after those meetings in corridors and with officials
involve some historic battles between Departments of State that
don't get resolved very easily without very clear political guidance
and, indeed, negotiating from the very top, and officials feeling
as if they are working towards an end that they can rationally
explain to themselves and their peers. And that sometimes creates
excessive caution and delay and overemphasis on process. That's
the sort of thing that can only be cleared up with firm political
But I share Bob's view that there is actually a very
sensible deal to be done between these departments of state around
the fears, the concerns that Treasury has about exposure to more
risk. I think it's really a question of taking the commitment
to create this institution in the public interest with a longterm
objective while managing a serious current deficit problem. We
think a lot of the suggestions we've made in the report don't
put excessive pressure on the Treasury's capacity to manage debt
and where their skills can be drawn upon, and their knowledge
of debt markets, which is exceptional, can be drawn upon.
Q70 Caroline Lucas:
It was on this point, but it was just a question about whether
or not the development banks offer any kind of precedent for trying
to resolve the tension that's talked about in terms of even what's
on the balance sheet and what isn't. Because isn't it the case
that development banks are treated slightly differently?
Bob Wigley: Unfortunately
not. Elsewhere in Europe, the development banks do not appear
by and large on their Governments' balance sheets in spite of
the fact that they're 100%, in general, Government owned and controlled.
Because, as I said earlier, we have a more robust and more transparent
public accounting approach in this country, a similar development
bank, for example, to the CDC in France would appear on the Government
balance sheet. So, let's put some numbers around it. Supposing
you'd just achieved a reduction in public sector net debt of £80
billion over a period, are you going to want to see a Green Investment
Bank be established that in a few years could reduce that reduction
by £20 billion? That's a tricky issue, so there is the conundrum.
Q71 Caroline Lucas:
Can I just put a little footnote and just say, explain what it
is? It doesn't feel like such a good conundrum.
I know. There are all sorts of things that are hard to explain,
such as why it's long-term and why feed-in tariffs appear on the
Government balance sheet when the Government do not pay a penny
for them. There are all sorts of strange aspects of Government
balance sheets that are hard to comprehend. But the markets are
also quite good at making distinctionsfine distinctionsbetween
an institution that's, if you like, wholly owned by the state
and one that is supported by the state. That's reflected in ratings
of bond instruments and in the way in which capital can be drawn
down. We make contributions to development institutions that aren't
drawn down. Very small amounts of capital are actually used but
large amounts are pledged. So, in this space, I think there is
plenty of room for us to come to a good, solid understanding with
those who have duties to look after the public balance sheetand
I know, very serious dutiesto find a way of making this
happen and for the answer not to be "No".
Chair: I think just
for the purposes of our report, I'm not sure how much we've got
on the record about this point that you're making about what is
on and is not on the balance sheet. Given that that is so important
to the debate about the shape, if you've got any further comments
that you could let us have in writing, I think we would find that
Q72 Neil Carmichael:
Basically, how would you describe the ideal relationship that
the bank should have with the Treasury? Because clearly that's
pivotal to this discussion.
Bob Wigley: That's
a complicated question and you have to look at the various activities
that the bank would be undertaking. On the one hand you have the
provision of risk mitigation mechanisms. That's a big theme of
our report. We downplayed the idea of subsidy and up-played the
idea of risk mitigation because we think that's the best way to
facilitate private sector investment, which isn't occurring today.
Now, clearly, if the Government are going to provide an insurance
product against, for example, construction risk or bad weather
in the North sea, then it is going to want to retain control over
the decision about whether to provide that insurance and on what
terms, because these instruments could give rise to liabilities
that could come back on to the Government balance sheet. So, there
are some things that the Treasury will want to retain strong control
There are other activities, for example the issuing
of green ISAs, which could be done by a joint venture between
the Green Investment Bank and a retail fund manager, which the
Treasury probably needs very little control or, indeed, possibly
even involvement in. So, I think the structure has to accommodate
both the ability of the Treasury to directly control some decisions
and probably have no involvement in others. I'm sorry that's a
rather complicated answer to your question, but the Green Investment
Bank by its nature is a complicated beast.
But it's a very good way of explaining the kind of trade-offs
that will be necessary to make this real, and that we shouldn't
get too hung up on a single bricks and mortar type institution.
There are critical relationships here that are necessary to make
the idea of the Green Investment Bank flourish. One of those is
with Treasury. The Debt Management Office of the Treasury is going
to be highly engaged in the provision of debt instruments into
the space that we hope the Green Investment Bank will help to
create. But others, bondholders of various types, will provide
money into the projects, into the plans that we have for offshore
wind or energy efficiency or smart grid, which are the three that
we chose to highlight. Clearly, lots of other people's money are
going to be engaged.
So, maybe another way to think about this is that
the Treasury will have to be, in part, an owner of this idea,
but the idea will be bigger than the Treasury and will have a
long-term vision safeguarded by a board, preferably as independent
as is possible to create, given the connection it will have to
have with Government, and Treasury no doubt will feature on that
as well. The senior Ministers of Government that have responsibility
for this idea, who have all displayed their intention to make
it real, will clearly define roles for this institution to interact
regularly with the Treasury so that they don't find themselves
in some way fighting or as an enemy of the institution that's
That would be counterproductive.
Q73 Peter Aldous:
If we can just move on, in your report you recommended that the
Green Investment Bank should have the powers to identify market
failures and then address them. What we see now is that the Government
seem to be doing a lot of this groundwork themselves. They've
told us that they are still doing work to identify market failures
at this current time. Do you think it's right for them to have
adopted that approach?
Bob Wigley: Well,
in my foreword to the report I did say at the end that I thought
there would have to be a period of furtherI think I called
itappropriate analysis. In other words, the Government,
in a sense, would need to look at our conclusions and assess itself
whether they felt these conclusions were right. I think that's
kind of what's been going on for the past few months. My sense
is that that period of internal analysis is coming very soon to
an end, and that you will see in the next few weeks more external
consultation on the basis of the internal analysis that has taken
place, and I think that will involve very senior officials, particularly
from BIS, consulting with market participants. So, there has been
a period; I think it's coming to an end, and I think you're going
to see more external involvement very shortly.
Q74 Caroline Lucas:
Carrying on the issue of the Government's relationship, they have
indicated that they will conduct what they call "market testing"
on possible interventions by the investment bank. How do you think
they should do that if, indeed, they should do that?
Bob Wigley: One
of the things I've suggestedobviously, time will tell whether
this occurs or notis that I would pick the three areas
we highlighted in the report as the three things you would do.
Those things are the three that you have just mentionedoffshore
wind, energy efficiency and the smart grid. I would then go and
find five or six people who are experts in those areas. So I would
find the person who builds offshore wind farms, the person who
finances them and the person who insures them, and I'd basically
get those people in a room and I would say, "Okay, we want
to ramp up the pace of investment dramatically from where it is
today. Please help us understand, in detail, the barriers that
are stopping us building six rather than two wind farms in the
next three years," and get into really quite a high degree
of detail. The reason I think that would be useful if you did
it in each of these three areas is that you would then, I think,
inform the structural debate that's going on. People have the
information in our report, but you can only do so much in a limited
threemonth commission report. What we now need to do is
get very specific on the particular projects that we want to pursue
and get down to a level of detail, because I think that will feed
back to the structural debate and be very helpful. So, that's
what I've recommended.
Work back from the real problems and real transactions. Clearly,
over time you would expect the institution to reach into other
parts of the economy, to be able to offer solutions to cleantech
manufacturing or small and medium-sized enterprises that have
the scope to grow and export their technologies. There are lots
of things that this institution should ultimately be capable of
assisting in, but initially we have to display its value through
real problems that need to be resolved through this kind of organisation
of interests. They exist, so putting the right people around the
table and having institutional capacity to find what it is that
needs to be resolved now is the right way to test it.
Q75 Caroline Lucas:
With those three examples, do you think it's equally useful, if
you like, for the bank to be funding both the big infrastructure
ones like the offshore wind and the smart grid? Presumably, energy
efficiency is something slightly different, isn't it? Would you
envisage it would have a role to, for example, fund the rolling
out of an areabased, street-by-street energy efficiency
programme? Could it get down to that level of detail?
Well, yes. When we discuss energy efficiency, clearly there are
several ways to express the need to dramatically improve the efficiency
of the nation's use of whatever fuel inputs we depend upon. That
can be broken up into industrial efficiency, residential and office
buildings, and lots of work has been done to show how effective
it is to control emissions in the use of buildings. But we did
have in mind major urban retrofitting projects. Birmingham was
an example, where we knew we had good political support for such
a plan, and a huge public housing portfolio with serious energy
efficiency problems that need to be resolved. We thought that
if you construct a plan, at scale, that needs scale funding, and
that funding hasn't been forthcoming in recent timesthere
is money around, but it isn't organised in a way that could cover
that kind of transformation over a large areathen that
is the sort of project that you could see the Green Investment
Bank helping to make good with this combination of some of its
own money and its capacity to reach into the commercial markets
and find the right way to access debt instruments, because that's
part of the skill that we want to concentrate in this institution.
To do big transformations, you need large amounts of capital and
you can only draw upon large amounts of capital from the very
large, liquid, global debt markets. It doesn't come with equity;
it doesn't come with public finance. So, half the trick here is,
how do you access it? What's the contact point? What do they want
to see before they will release this money on terms that they
understand? That kind of engagement requires expertise and dedication
and an understanding of the many different interests that have
to be put together. That's the sort of project enterprise that
we think the Green Investment Bank should do. So, largescale
energy efficiency would be right in the slot for it.
Q76 Mr Spencer:
It was the previous point, really, in that when you're doing that
market testing, if you came across a scenario where, for example,
it was apparent that anaerobic digestion units weren't being built
because there wasn't confidence in the feedin tariffs, would
you say that your role was to go back to other Government Departments
and say, "We've found this and you guys need to make this
Yes, I think that is part of the role of the bank, but only because
once it's built its reputation as a trusted and reliable institution,
it would know how to work back from investment needs to policy
design. We aren't terribly good at connecting public policy making
with investment needs. We tend not to understand each other's
language and often thinksometimes we even celebrate thisthat
we can do things without each other when, in fact, this kind of
transformation is not possible without a very close association
and alignment of interest between public policy making and private
finance. So, yes, I think it would be useful to have an institution
that was very skilled at deploying capital and, therefore, very
skilled at understanding what works and doesn't work and taking
that back into the policy making process so we design policy instruments
in such a way as to make it more likely that they get implemented.
Because, let's face it, a lot of what we're talking about here
is simply better implementation of existing policy commitments.
The smart grids may be much earlier on in their development, but
all three areas we've picked are all areas where Governments have
committed to do something and it's not happening, or not happening
fast enough, and this is a way of making that connection good.
Bob Wigley: I think
the point you raised, Mark, about ultimately what is political
and regulatory risk is a key barrier today to investment in projects.
History is littered with examples of people investing in projects
based on a regulatory regime, only to find 10 or 15 years down
the track and maybe two or three Governments later that that regime
changes and the economic returns that were promised were, therefore,
not achieved. We've seen, recently, Spain unilaterally changing
its feedin tariff and materially, negatively affecting the
returns of renewable projects there, with a very loud reaction
from the investors as a result.
So, we did explore this in some detail in our report,
and Dieter Helm at Oxford university came up with a mechanismI
think that it is cleverwhich is the idea that the Green
Investment Bank could write a contractual put option to the builders
of projects, which basically would say, "If you turn up in
five years' time with a completed project that meets the following
criteria, we, the Green Investment Bank, hereby contract to buy
it from you such that you will receive a return on regulated assets
of x%", a bit like a utility. What that does is, assuming
that the GIB is owned by the Government, it aligns the cost of
changing regulation with the person who has the power to change
regulation. Therefore, it should be a put option that should never
be exercised, because what it would mean is that if the Government
decided to change the feedin tariff, it might suddenly find
these contracts, these puts, were exercised against the bank and,
therefore, you have a universality of interest. That is the concept.
Q77 Zac Goldsmith:
Presumably, then, by that logic if Spain had a Green Investment
Bank on the scale that you're talking about for here, it would
never have made the decision
Bob Wigley: They
wouldn't have changed the rules, or
Well, if they're going to change the rules, which clearly sometimes
you have to, you have a rational process for that change that
fits with the investors' expectations and the model for their
returns. So, you can't promise an investor that the rules will
never change, because life changes and it's sometimes absolutely
necessary. But retroactive change is death to investment, of which
we have lots of examplesit really puts people off. So you
have to give them plenty of notice and a process they understand,
and we think this institution would be helpful in that regard.
Q78 Neil Carmichael:
The "Bank Commission Report" makes a fairly strong case
for rationalising structures within the Green Investment Bank.
Does that not negate the argument that we need something additional
rather than just mopping up what we've already got? Is rationalisation
fundamentally important to the success of the Green Investment
Bob Wigley: Let
me have a go first, and then James.
You go first.
Bob Wigley: First,
I think it is important that the existing plethora of organisations,
which has somewhat overlapping objectives, be rationalised over
time. Is it fundamental to the creation of a Green Investment
Bank? No. I think there are lots of other things the Green Investment
Bank is going to do that are, frankly, probably more important.
But would it nevertheless be helpful to rationalise what is today
a very confused space and put everybody under one roof with one
clear set of objectives and a hopefully more effective use of
funding? Yes. Does that negate the argument for the incremental?
No, definitely not. I think in our report we make it very clear
that the level of investment today falls way short of what's necessary
to achieve our targets, and we absolutely need something incremental
and substantive if we are going to meet our legal commitments.
Yes, I'll just simply endorse all that. I emphasise that this
has got to be an expert institution, so there will be expertise
in some of these existing bodies that can be drawn upon. But it's
not the same as the existing institutions. It's an investment
house. It's going to be a specialist in investment, encouraging
investment by other investors whose language it will have to speak.
It has also got a time frame for implementation, and it will transcend
annual spending rounds. So, the culture of the organisation should
be expert; it should be able to attract very high quality people;
and it will be an institution to represent the British public
interest for the long term. It will have status and clout in commercial
markets, otherwise the other institutions that we need to work
with will not give it sufficient respect. So, all those things
argue for something new and distinct from that which we have,
making good use of expertise that we have in those institutions,
and I think it's beholden on all institutions at this particular
time to be very careful with their money. If we can reduce some
of the cost in delivering the service to the nation of reducing
greenhouse gas emissions, then we should.
Bob Wigley: And
substantially improve its returns.
And improve its returns, exactly.
Q79 Neil Carmichael:
I completely agree that you need the expertsEIB and EBRD
are good examples. The question is whether we have access to enough
quality advice and experts.
Bob Wigley: All
I can tell you is that even before the report was published, but
certainly since it was published, I have had hundreds of CVs from
investment professionals, bankers, insurance experts, saying,
"This is a fascinating and very important project and we'd
love to come and work for it. Please can you read our CV and get
back to us ASAP." So I don't think there's going to be any
Neil Carmichael: That's very encouraging.
Bob Wigley: I think
it very much hits a theme that a lot of people think is very important,
and I think it will be able to secure very good talent at a good
This is a big point, and I think it's also the case that this
institution is going to have to represent the United Kingdom overseas
as well. Its work will be in this country but we are going to
have to attract inward investment. We're going to have to work
with providers of capital from outside these shores. This is an
organisation that shouldif it's constituted correctly and
if it's got a mandate that meets the kind of criteria that we've
set out in our reportattract very good people indeed. It
will be something that you'll be proud to be associated with.
Q80 Neil Carmichael:
I'm glad to hear that, because that's certainly what I think should
happen. I've got one more question, which may lead to another.
In this report, I've just noticed the sentence concluding with,
"The bank will work as part of overall Government policy".
Now, of course, that prompts the question whether policy will
What page is it on?
Neil Carmichael: That's on page 9.
Just so I can see the context of it.
Neil Carmichael: I'm not trying to trip
you up. I just think it's a really important point, because clearly,
Government policy is going to influence and to some extent determine
how things go. We all know large investment projects do require
some sort of security in terms of forward planning and that, in
these sort of fields, is embedded in public policy as well. So,
my question, really, is, how sure are you that the Green Investment
Bank will find that sort of public policy that is helpful and
This is, in part, some of the previous questions: trying to find
a way of ensuring that the institution plays its part in improving
the quality of public policy making on these vital areas. That
might involve improving integration between various departments
of state so that you don't have a policy that emerges from one
Departmentfor example, DECCthat gets negated by
another Department, for example BIS. They're actually working
quite well together at the moment, but you get my point.
Q81 Neil Carmichael:
I do, because I've been testing that point in this Committee in
There are some very complex interactions between regulatory regimes
that this engages, between regulating the power market, making
sure that the grid system is regulated in a way that encourages
newcomers to be able to compete fairly with incumbents. These
are all quite complicated integrative issues and, over many years,
separate Departments of State have fought territorially for control
over them. That isn't going to all be magically resolved by a
Green Investment Bank, but I think the Green Investment Bank can
help explain what is required. If you want this amount of moneythe
numbers are huge; they're unprecedented in recent historyif
you want this money to flow, you need to construct policy in this
sort of way and it needs to have this kind of length, and then
you increase the chances that you will deliver your policy commitment
in the right timeframe. So, yes, we hope that relationship
Q82 Neil Carmichael:
That's quite a different kind of role for, let's say, another
bank, which would not necessarily be expecting to influence Government
This is a public institution with public policy objectives. It
is not the same as a high street bank or even a specialist investment
manager. The culture of the institution will have to be locked
on to this objective. The deployment of capital is in the public
interest. It's bringing money from the private sector, but for
a purpose that has been set through public policy and through
the lawmaking institution.
Chair: I'm very conscious
that Mr Wigleyoh, you wanted to come in on this?
Bob Wigley: I wanted
to answer that question, yes.
Chair: Can I just check your earliest
time of departure?
Bob Wigley: Four
Chair: Right, we are going to have to
Bob Wigley: So,
from a personal point of view, I'm not involved sufficiently to
be able to say that I'm confident that that will be the outcome,
but I'm hopeful it will be the outcome. Because I think if you
think about what's going on at the moment in terms of formulating
a policy for Green Deal, in terms of drafting a Bill for a new
regulation of the power market through to the creation of the
Green Investment Bank, it's all happening in parallel. It's being
done by the same people, so you would think you have a reasonable
degree of expectation that it's going to be joined up. So, that
would be my answer to your question. I can't say I'm confident,
but I'm certainly hopeful based on what I'm seeing.
Neil Carmichael: Yes. Well, let's hope
we can be confident. That's my observation.
Chair: I think one of the roles of this
Committee is to see how it can be joined up.
Q83 Caroline Nokes:
Thank you. Your report has identified the potential dangers of
a funding gap between the early stage in technologies, where R
and D funding has finished? How does that conflict with BIS's
business plan, where it was focused very much on late stage technologies,
and what sort of dangers do you think that that throws up?
Well, ideally this institution would cover a range of investment
needs so that it would not merelythat's quite a big "merely"be
about large infrastructure investment of the type that we have
discussed most, offshore wind being the paramount example, perhaps,
but that it would play its part in facilitating capital flow.
I want to stress that word. It may not, in fact, be managing any
particular money itself for this purpose, but facilitating capital
flow into the areas of the economy where innovation happens. Businesses
that have the potential to grow and be financed by the ordinary
market in capital that exists could be encouraged to grow again
in the public interest, so that we have many technologies, many
innovators out there feeling as if Britain is a great place to
take those ideas, develop them and make real businesses. Because
however grand the infrastructure or design, it's small businesses
that have to feed into it, bring their expertise and keep the
incumbents on their toes and challenge them to innovate themselves.
It's a notoriously difficult place to finance. People lose money
making bets that lose. We have a venture capital community here
that is good, but it could be bigger and it could be encouraged
to be more focused on these vital environmental technologies.
So, I do see a role for the institution in that way. I hope that
it will have that capacity, but I sense that the bulk of the work
is actually going to be done by others outside the institution
in specialist funds that could be encouraged, maybe, through fiscal
incentives, through the formation of these pools of capital that
the Green Investment Bank might promote.
Q84 Zac Goldsmith:
Would it be possible to structure the bank in a way that it requires
a certain percentage of investment in the very early stage stuff
and another percentage perhaps in slightly more long-term projects?
Tidal power, for example, is a good one. Otherwise all the pressure
from Government will be to invest in the safest possible things
where already there may be not enough money, but certainly money
There is that risk and you could put it in a mandate. I still
think it's necessary at the early stages of this institution to
demonstrate very clearly that the institution works to get things
done that you can see, touch and feel. That's what it does.
Bob Wigley: Demonstrate
value for money, in other words.
You've really got to demonstrate value for money at the very start,
but I do hope the institution retains the capacity and the expertise.
And don't forget, that makes it quite a difficult institution
to manage, because the kind of people who are really very good
at large infrastructure projects and understand the debt market
perfectly tend not to be the same people who understand venture
capital investment in small companies, where they might have to
take an active part in the management after their investment.
So, different human beings are involved and managing them both
will be a challenge, says he with some experience.
Q85 Caroline Nokes:
Without a Green Investment Bank, do you think the early stage
technologies could get that funding?
We do have a problem right now. We have some money. We have some
good institutions. We have some good experimentation happening
at the university level. There are some attractive examples from
Imperial and other institutions that have built venture capital
organisations alongside them. But rather like the justification
for the bank as a whole, for that particular section what we're
trying to do is accelerate and to have ways of managing the risk
of that acceleration. Individual deals you'll always find, and
there are providers of capital and there's good expertise; there
are angel investors and early stage investors, we have them. But
we're trying to effect a transformation in our economy over a
relatively short period of time. We're trying to drive investment.
In that context, some help is required. I think a dedicated investment
institution rather than a grantmaking institution would
Q86 Mr Spencer:
Moving on, is that all right, Chair?
Chair: Yes, that's fine.
Mr Spencer: You said these projects must
demonstrate value for money. I'm just trying to work out in my
own mind how the Green Investment Bank will sit with the commercial
banking sector and private investment. I am concerned about how
we can stop the Green Investment Bank crowding out the private
Bob Wigley: Well,
I think, two answers to that. First of all, if we look back in
three or four years' time and we conclude that there was a small
element of crowding out by the Green Investment Bank, that would
be a fantastic outcome. I don't mean that as a flippant answer,
but today the shortfall in investment is so huge that we would
really crack the problem if we got to that point. But secondly,
and to perhaps be slightly less flippant, the delivery mechanism
that we've designed for the bank and its operating principles
is always for the bank, when providing funding to projects of
whatever form, to do it in partnership with the private sector.
So, for example, if we're making a venture capital investment,
we do it alongside a panel of venture capital investors. If we're
issuing green ISAs, we do it in a joint vehicle with a fund management
company. If we're issuing green bonds we do it through a special
purpose vehicle that might have an insurance company as one of
its shareholders. So, the process of getting you to delivery should
ensure that you're always working in partnership with the private
sector and that wherever public sector money is at risk there
is more private sector money at risk, so that the public in a
sense are behind someone who's got their own money on the line,
who has done their own due diligence, who has made their own risk
assessment and who has more to lose than the public. Those principles
we think are very important for the way the bank operates and
should ensure that there's no crowding out. In fact, as we say,
it's really all about crowding in.
It is all about crowding in.
Q87 Mr Spencer:
So, just without trying to get it down to too specific cases:
if you've got a project that is being proposed, which the private
sector won't wholly fund, you see a role where you might be able
to part fund it just to give some pump-priming, to give it a kick
over the line?
Bob Wigley: Exactly.
Yes, and to fund different parts of the risk profile of the investment.
Bob Wigley: And
it might not be funding, sorry.
Yes, it might not actually be funding.
Bob Wigley: It
might be risk mitigationan insurance product.
It may be something else that just enables it to happen. One of
the things we've really got to be clear about, we really do have
a capital flow problem right now. This is one of the reasons why
I don't want to be coming back here in two years' time and answering
your questions about whether there might be a Green Investment
Chair: We're always very pleased to have
you come back to answer questions.
Yes, that would be lovely, of course, but
Neil Carmichael: Well, we could talk
about the success of it.
The fact is that there's no danger of crowding anything out right
Mr Spencer: No, but
you do see
But I do see the issue and people do complain about some of the
development banks, in certain circumstances, crowding out private
sector investment. But that tends to be in markets that are really
very immature or where the institution, perhaps, has lost connection
with its true policy objective. This is all about solving a problem.
It's really very focused, and because of that it will always look
to somebody else to bring the resources to deal with it. It was
never going to be the case that this institution would solve this
through money on its own balance sheet. It's about encouraging
investment to flow.
Q88 Mr Spencer:
You see those loans at a commercial rate, but you're not going
to be looking for security over assets? Basically, if the private
sector is willing to put cash in as well, you'd see that as enough
security for the bank to be able to support it?
Well, it depends very much on what sort of project it is, but
as an example, if the Green Investment Bank helps put togetherI
want to reemphasise this convening, enabling and organising
functionan offshore wind deal to get one of the licensed
areas to be fully developed, how would it do that? It would do
that by finding a way of accessing the debt capital markets. How
would it do that? It would do that by taking away some of the
risk that they currently won't finance. They'll look for some
other equity provider as well. They're not going to cover the
whole of the risk themselves. They might get an insurance business
to come in and cover some of that risk in the construction phase.
But it could be that the Government's involvement through the
Green Investment Bank might stop post construction, once the turbines
are up and running and once the revenues from generating power
into the grid start to flow. At that point they can syndicate
their debt, recover, get returns back into the Green Investment
Bank and use it to fund something else, maybe move on to the
Chair: I'm very conscious that Mr Wigley
needs to leave at 4 pm, and I'm not going to allow you to be late
Bob Wigley: Thank
Just before we carry on with our questioning perhaps to Mr Cameron,
I just wonder if there was anything that you feel that you've
not had a chance to really put on the record. You've got three
minutes before 4 pm. Is there anything that's absolutely important
that we should take note of in terms of the risks, the opportunities,
the determination that you'd like to say to us now before you
Bob Wigley: I think
one thing I would say is that before I got involved in this project
I really knew very little about the whole area of cleantech investing.
Luckily, I was supported by some experts in that area, but through
the process of chairing the Commission and writing the report
I have become quite passionate about the need for a green investment
institution of some form. I remain personally committed to supporting
the Government with whatever they ultimately decide to do, provided
it has a substantive mandate, it has sufficient resources to enable
it to achieve that mandate and it has a governance structure that
gives it a fair chance of achieving its mandate. That's what I'd
like to see.
I guess the second point to make is that it is slightly
unfortunate that the press at the moment is portraying a sort
of picture of dispute that I think is more an intelligent debate,
as I tried to say earlier, by, as I see it, a group of senior
Ministers who are all committed to making something like I've
just described happen but are wrestling with some difficult, mutually
incompatible objectives in the process of trying to get to that
Chair: I think Mr Aldous has one burning
question to ask before you leave.
Q90 Peter Aldous:
Yes, I'm jumping a little bit ahead in the script but it is a
burning question: is it a fund or is it a bank? That appears to
be one of the discussions that is going around. I noticed you've
referred to "the institution" at some stages.
Chair: I think we've got one minute for
Mr Wigley and then we'll revert to our questioning.
Peter Aldous: How critical is it that
the bank should have powers to raise its own funds?
Bob Wigley: The
bank versus fund debate, as I tried to explain in an earlier answer,
is in a sense to oversimplify the issue. The institution
or institutions that come out of this process need to be able
to do a number of things. We've identified them in the report.
I suppose there are some advantages to a bank structure, which
would include the ability to leverage whatever public investment
is made many times over. So, for example, by putting, let's say,
£4 billion into a bank through the bar ratio, you get that
perhaps to £40 billion of ultimate investment. In a fund
it's probably more difficult to lever money in that way, so you
probably have a lower level of leverage. On the other hand, one
has to go back to the public sector accounting issues that I identified
at the beginning, and Ihaving written myself to the Chancellor
in advance of the comprehensive spending review supporting him
in making significant cuts in the interests of restoring this
country's finances to a more healthy placewould not support
doing something which put that at risk. So we need to find a way
through this that achieves, as I have said, what are somewhat
difficult and competing objectives. But those are the issues.
Chair: Mr Wigley, thank
you very much indeed. We will resume solo with Mr Cameron, if
that is all right, and I think we can move to Sheryll Murray.
May I just add a small word in answer to that question?
Chair: We will come to
that in a moment.
I want to come back to that.
Chair: We will come back
Q91 Sheryll Murray:
The Green Investment Bank Commission's report says that £55
billion per year is needed to meet our low carbon targets. Is
the Government's £1 billion plus the asset sales really enough
leverage to bring in that public investment?
On its own it's not sufficient. You would have to find quite a
lot from these asset sales to be able to touch that £55 billion
target in your first year of operation, but I think I made clear
to you already, I am definitely in the "let's get started"
camp of this debate. So I would be very happy to take whatever
was there to get started, knowing that I could find leverage through
good transactions initially from which you can grow your capital
base. So the key elements are: get the political support properly
grounded so that it is not merely rhetoric; get the leadership
of the new institution sorted out that's capable of growing the
institution; and get started with some transactions that exemplify
what the Green Investment Bank is for. When you have those things
done, and you have some money laid out in investments people can
see and understand, it's going to be a lot easier to raise more
and build that balance sheet up at the time. If this idea was
wholly located in the private sectorand I'm an entrepreneur
who has built businessesyou don't wait until you've got
everything perfectly aligned, you've got everything nicely built
and then you show it to the world. You take your idea and you
sell it as hard as you can. From total dedication and passion
to deliver it, you grow. That, I think, is what we need as an
institution. We should not, for example, spend an extra year or
so trying to get just that little bit more on the balance sheet
with another asset sale, or to get started while we're failing
to fund things that need to be funded now. So, short answer to
your questionwhich isn't that short, is itthe £55
billion isn't going to come from that balance sheet, but we're
not going to get towards £55 billion unless we get started.
So let's take what we've got and build upon it.
Q92 Sheryll Murray:
Can I also ask you, if it does lever in private sector funding
for infrastructure products, how can it avoid taking all the risks
and leaving the profits to the private sector?
That's a really good point. So the answer is to do some transactions,
set standards, show how it can be done and then know when to stop
and when to withdraw. That's a skill. I can't give you any more,
than it's a question of judgment in the leadership of the organisation.
So say you did three back-to-back offshore wind deals, all at
scale, and the market has seen, "Oh, that's how you do it,
I could take that risk", then you're off. The Green Investment
Bank can then move to another area and find something else that's
harder to do that the commercial sector hasn't done yet. Don't
forget the bulk of the investment community, particularly the
large institutional investors, are highly conservative followers;
they need to be led somewhere by someone whom they trust. So what
this institution should be able to do is show where the money
should go. Explain clearly, that done this way, there is an opportunity
to make the kind of risk-adjusted returns that you are happy with
so you can do it now. It's really a question of knowing when to
Sheryll Murray: Thank
Q93 Neil Carmichael:
Just linked to the questions I was pursuing before, the Government
are introducing quite a lot of things in addition to the Green
Investment Bank, such as the Green Deal, which you presumably
welcome. What I want to know really is, are there any other sort
of policy areas which you think need to be adjusted to help the
Green Investment Bank? I'm thinking of one straight away, to be
perfectly honest, which is a planning system.
Neil Carmichael: Because
there you are, you've got a lot of people interested in, let's
say, energy technology in one form or another, and we can all
list plenty of ideas. The business community already has had enough
of the planning system, so what kind of changes would you like
to see, and are there any other areas which you think need to
be addressed while we think about the Green Investment Bank as
I know this is on the Government's agenda anywayto try
and simplify and accelerate planningand clearly there are
vital democratic deal-making processes that need to be honoured
and respected, so that people feel that they have a say in what
happens in their environment and especially in their local environment.
It helps to have a plan and know where you're going. I think in
this area, the Green Investment Bank should be in service of good
plans for the future development of the nation, which turn on
dramatically improving our infrastructure and ensuring that we
have a system for delivering energy and power that is in balance
so that we don't just talk about how much to generate, but also
how much demand we can reduce through efficiency. Do we have an
intelligent grid that can, in real time, match the two?
So I think we have all the bits there at the
moment. The planning process is problematic. We have investee
companies that have real trouble because of sometimes quite irrational
thingsrequirements to do things in the wrong order and
the wrong sequence that frustrate enormouslyand that does
need looking at. But I don't think the problem is resolved merely
by picking one or two failings in the system. It really starts
by having a very authoritative plan for the future development
of the nation that you then encourage the private sector to deliver
in the public interest.
Q94 Neil Carmichael:
So are you saying the Department of Energy and Climate Change,
for example, should come up with a plan for infrastructure in
energy and so forth in a much wider, more detailed way than we
have thus far managed?
It is a whole of Government enterprise, yes.
But the issue surely is how all that is synchronised with the
imperatives of this, and what the mechanism is for that. I think,
in a way, we're looking to see how that might all be co-ordinated
Yes, I'm with you absolutely with that. It is a question of integration.
There is a tendency in the Green Investment Bank debate to load
everybody's aspirations for a better everythingbetter government,
better investmenton to this institution that doesn't exist
yet, but I do think it would help to have an institution designed
as closely as possible in the way that we have recommended. I
think it would exert quite helpful pressure on departments to
align their interest more effectively in order to get things done.
In order to get finance to move to where
Q96 Neil Carmichael:
Sort of a catalyst really, do you see yourself as?
My experience is that you have to develop a dialogue around problem
solving, that is more powerful than the one that is about process.
So there is a tendency when things get really difficult, to encourage
more process because it puts things out. Investors, of course,
get impatient with process, not that they should trump particularly
democratic process but it's quite a good tension. It should be
a good, creative tension and I think an institution that is designed
expressly to sit between the interest of the investors and the
interests of the nation, the public of the nation, I think will
be a healthy thing for many of these areas.
Q97 Neil Carmichael:
So it involves an interface between public policy and that money.
Q98 Peter Aldous:
I will just come back to the question I asked Mr Wigley. Is it
a bank or a fund?
There's a very straightforward political answerit is a
bank. We have committed to create a Green Investment Bank. There
is symbolism in the choice of words. Bank versus fund, in political
terms, provides only one answerbank. Bob was giving a charmingly
accurate answer, which is, in the real world it doesn't matter
that much. It matters certainly on the character of the institution
once it becomes real, and there are distinctions between what
it means to be a bank and what it means to be a fund. Even there,
I think it's quite easy to say that bank does more of what we
want to do than a fund. It feels like it's a lesson in linguistics
but I fully understand the code here and the answer is bank. But
equally I know that there is a lot of negotiating and deal making
to be done, and what matters is the mandate, the leadership and
the problem solving. If, in the end, this institution is not called
"green", "investment" or "bank",
I don't much mind as long as it really does help to deliver £55
billion a year into the things that we need to transform our economy.
So I don't wish to be glib about this, because I know it matters,
and we are squarely in the political debate now, but ultimately
the institution has to be a very credible institution in the capital
markets and it has to be around for decades. I want to see people
who work in this institution proudly displaying their name cards
with some nice embossed logo on it that says, "I work for
something that's here to last and that's in the national interest".
We might finish up calling it something other than
bank or fund, but for the time being the answer is bank.
Q99 Sheryll Murray:
Can I just come back to ways of raising that £55 billion
investment a year. I think you have already confirmed this, but
could you just be clear? Green bonds seem to be a new invention.
Should the Green Investment Bank contract out the creating and
managing of green bonds to another established and financially
savvy investment fund, in your opinion?
First, a couple of things on green bonds. Rather like the Green
Investment Bank, there are a half a dozen versions of what one
might mean. There are lots of ways in which you could describe
a bond as a green bond. We have quite a few examples already,
but they're all slightly quirky and different. Some have been
issued by the World Bank; some have been issued by the IFC; some
have been issued by a Swedish bank; and there is a Japanese version.
They are all slightly different. In fact, what Bob and I were
guiding you towards is to think that at some stage, we have to
create an investment product that looks awfully like every other
bond that's out there in order to get access to the really big
money. They need something that they understand, that's not too
quirky and different, and that's really quite plain. So, it involves
finding a way of taking away the risk, so that at a certain point
you have something that you can sell into the huge global market.
That's the skill that we've all got to learn, and where the money
really is. There's really no other part of the financial ecosystem
that has sufficient resources to deliver those amounts. The whole
game is finding a way there. So
Sheryll Murray: Can I
Can I finish off the second part of your question?
Sheryll Murray: Yes.
So, getting your way there might involve more than one route.
If the bank is well capitalised, has a good relationship with
Treasurywhich after all is responsible for very active
management of the Government's debt and knows a lot about the
bond marketthere's every possibility you could work with
Treasury to issue a bond that is green because of its purposes.
The capital markets would like it, and they would take it up and
buy it in large amounts. That would suffice for me. But you could
easily work out another route where you work with the EIB or you
work with another issuer of bonds that would be quite happy to
use that money on your projects.
You might also encourage corporate bonds to
be issued. So if you had one of the consortia for offshore wind
form itself into a corporate entity, it might be able to raise
bonds on its own account, because it would be working close by
in government. Some of the risk would be absorbed by the Green
Investment Bank, and the markets could get comfortable with the
risk associated with that corporate issuance. So there's already
three ways in which a bond could be the issued for the purposes
that we care about, each of which could be called green, but they
involve slightly different routes.
Q100 Sheryll Murray:
Can I ask you about the other end now? How important are green
ISAs and do you think they're symbolic, or a symbolic way of getting
ordinary people on board to buy into the Green Investment Bank?
I really do.
Sheryll Murray: Would
they have a particular financial benefit for the Green Investment
I think this is vitally important. It's often not emphasised by
the big financiers, but I think politically and in the national
interest, we have to try very hard to get this right. So this
is how the argument goes: our savings levels are too low; we've
been a nation of debtors for a long time; we have to build up
our savings. We need to make those savings work for returns in
our economy. We need to make them work in our economy on real
assetsreal things that you can touch, feel and go to see,
not whizzy, clever financial products that people don't understand.
Such savings have to produce measurable returns. They need to
produce dividendsyields that allow people to plan for their
future and feel comfortable. They may be quite modest yields;
they may not be racy 30% returnsit certainly won't be thatbut
they are just that bit more dependable, and people can understand
that their money, that they saved, built something in their community
that they use. I think that's politically powerful and that it
will restore confidence and faith in what investment is really
The other thing I like about the ISA idea and
why I think it could be, over time, not right away, connected
to the bond idea, is that in times of crisisthis is a crisis;
it's a very prolonged one and it's not like wartimewe have
managed to galvanise the public to raise money very quickly in
the national interest, which is what war bonds did. War bonds
were taken up in their thousands in relatively small amounts.
I think that you could create the conditions in which the public
could invest in bonds for these infrastructure projects and provide
new capitalnot in vast amountsthat currently does
not come into these markets. Because the institution that we are
hopefully going to create is precisely designed to manage risk
on behalf of the Government, it will be doing so on behalf of
the public as well. I like that connection. I think it's politically
viable and attractive, introducing higher levels of savings and
money applied to problem solving in our own country.
And in respect to the discussions you've had with Government,
do you feel that there's sufficient recognition given to that
particular strand of thought?
I'm not sure whether I know; I think so. It seems to have been
well received, and I haven't heard too many negative things. But
what tends to happen, and it may be inevitable, is that we are
drawn towards the big projects. It is rather like the question
you asked earlier about early stage investment and small businesses
that need capital; there is a tendency to go towards big projects
and, in part, Bob and I have been recommending that we do that
because there is a need there and one can establish success quite
quickly by focusing on a few big things. On the notion of gradually
improving the savings of the nation and applying them to investments
that deliver emission reductions, a green agenda or something
that you can communicatedon't forget, you would take advice
from those who would market these products how best to connect
with the public at largeit may not be climate change on
the top that does that, but if the net result means more money
goes into investments that improve the state of the environment
here and globally, then that's a big achievement.
Q102 Mr Spencer:
Just an example of that would be that if we could convince more
people to insulate their loft space, it would reduce the amount
of energy needed. That's very small scale, though, isn't it, and
Of course. It's only small scale until it's scaled up, isn't it?
The green deal is an attempt to do that. But I know, from my own
experience in our own business, that the capital that we can deploy
into that marketplace is in businesses that are already of a certain
size. So we would make an allocation from our private equity fund
of maybe 8 million to 20 million for a company that
would deliver that service. What you want also is to be able to
have a pool of capital to draw on to make more investments of
that type, but also those at a lower rate. Also you want to invest
in businesses that are quite risky at quite an early stage. At
the other end, you want to invest in the large energy efficiency
project. That requires many actors to deliver, which might come
more in the form of bond.
Mr Spencer: That is the
role of asorry.
Chair: I think Sheryll
was just going to come in on that point.
Q103 Sheryll Murray:
Yes, I was just keen to hear that because I visited Denmark a
few years ago now, and a community near Aarhus wanted to build
a new harbour wall. What they did was they borrowed the money
to put three wind turbines on the new harbour wall. They retained
one themselves to repay the loan, and they sold the other two
to repay the money for the wall. It is a really good example of
how involving ordinary people can work.
Mr Spencer: That's a good
example of what a bank would do, but in the sense of people's
lofts it's almost a fund activity because there is no convincing
Mrs Jones to repay the money that has been invested in her loft.
True, and the investment that I was thinking of when answering
your question was an investment from a fund that we have in a
company that will deliver that service. But, and I am trying to
emphasise this, if you write that individual transaction much
more largely, so that you are talking about Birmingham, then you
could issue a bond which had a fixed-income return that a saver
could invest in and get a tax benefit from the Government for
that type of investment. Now, if you wanted to make other investments
more of a community nature, again, you could design an instrument
specifically for that purpose that would enable a tax benefit
to be accrued, perhaps by delivering something that would fit
with the big society movement, with an investment made to improve
things in your community. But that would require careful design
and careful explanation of risks so that it wasn't oversold or
missold and all those things that people worry about.
Chair: I think we need
to move on to our last two questions.
Q104 Simon Wright:
How does the Green Investment Bank strike the balance between
maximising a commercial return on the investment, against perhaps
less commercial but strongly green outcomes? In effect, how green
should the GIB aim to be?
Don't forget its mandate is going to be set by environmental objectives.
This is why we need to spend a bit more time talking about the
mandate and a bit less time talking about conflicts between Treasury
and other Departments. The mandate will have built into it the
Government's carbon reduction commitments, the budgetary requirements
that the nation now has to report on its carbon, a whole series
of Government commitments to deliver renewable energy and energy
efficiencies. The institution itself is going to be locked on
to those targets. That's what it's there for, so no one should
ever doubt its purposes. The commercial returns are largely going
to come to those who provided the capital which, on occasion,
there will be some public finance in, as we have explained. It
may well be a tranche of investment in a project that then gets
released to syndication maybe after the wind farms are built and
then recycled. So there will be a return that comes from that
but it will come from a commercial marketplace that is already
Because this is a public institution in the
public interest, you should see the commercial returns as largely
falling to others and the financial returns being recycled in
the delivery of the mission of the organisation. So it has to
act alongside commercial actors confidently, knowing their language,
knowing their interests, but fixed on its mandate which delivers
environmental benefit, its long-term objectives and recycling
the investment into improving the capital flow to deliver the
policy. It is not a commercial bank in that sense at all, or anything
I think we have just about reached the end of our time. The final
question was, in just one sentence, do you have any advice to
Government on how they should test the effectiveness of what it
is going to set up?
Just get started with some transactions and find things that need
to be done now, and display what can be done. I think you'll find
a lot of the anxiety and worry in certain parts of Government,
or the fear that is going to increase exposure to risk for the
Government, will go away when we start to do things.
Chair: On that note, I
am sure there are a lot of people around this table who have some
really fine examples. Thank you very much indeed for your time;
it has been helpful.